Lender of Last Resort
Financial crisis management is a key element of the Bank’s responsibility for financial stability. The Memorandum of Understanding (MoU) on financial stability between the Bank, FSA and HM Treasury outlined that in a financial crisis the Bank might need to undertake support operations – commonly referred to as acting as ‘Lender of Last Resort’. The aim of these official financial operations would be to limit the risk of problems in or affecting particular institutions spreading to other parts of the financial system.
The situations in which the Bank might undertake support operations
are outlined in the MoU. It notes that a support operation ‘is
expected to happen very rarely and would normally only be undertaken
in the case of a genuine threat to the stability of the financial
system to avoid a serious disturbance in the UK economy’.
If the Bank or the FSA identified a problem where a support
operation might be necessary, we would inform or consult with
each other. The Chancellor would be given the option of refusing
a support operation, given that public funds might ultimately
be put at risk.
Key Resources
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Memorandum of Understanding between HM Treasury,
the Bank of England and the Financial Services Authority
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